E-commerce tips
Store credit vs gift card: pros, cons, and how to use them
Table of content
- 1. Overview of store credit vs gift card
- 2. Pros, cons, and common use cases of store credit
- 3. Pros, cons, and common use cases of gift cards
- 4. The impact of store credit and gift cards on business performance
- 5. Store credit vs gift cards for eCommerce: Choosing the right strategy
- 6. How to set up store credit and gift cards on your Shopify store
- 7. Additional tips for maximizing profit with store credit and gift cards
- 8. Conclusion: Final thoughts and key takeaways
Today’s customer relationship has never been more fragile. In the digital marketplace, where losing a customer is just a click away, a single bad experience can cost you dearly. A PwC report shows that 1 in 3 customers will leave a brand they love after just one negative interaction. The risk climbs even higher, with 92% abandoning the brand completely after two or three negative experiences.
Amidst the intensifying competition and rising customer expectations, brands are demanding smarter ways to improve customer retention, strengthen relationships, and sustain engagement. Two of the most powerful tactics are store credit and gift cards. Yet despite serving different purposes, they are often confused, resulting in misapplied strategies that backfire and hurt revenue.
To help you avoid such pitfalls, this article provides a clear framework and insights into store credit vs gift card. By the end, you will understand:
Their definitions and how they differ
The pros and cons of each tool
Strategic use cases for refunds, retention, and acquisition
How to decide which option fits your business goals
1. Overview of store credit vs gift card
1.1. What is store credit?
Shopify store credit is part of a retailer’s policy, where a balance is issued to a customer’s account. For the amount given, the customer can use it as a payment method to purchase items from the store where it was issued, and it can be used at checkout. In the context of retail and e-commerce, businesses often use store credit to replace traditional cash refunds or as part of loyalty and rewards programs.
By default, the store credit balance is used up in one single purchase if the item costs more than the balance you are holding. That said, the credit is not limited to one transaction only. In case the purchase is smaller than the available credit, the remaining balance can either stay for future use or expire after a set period. It depends on the store’s policy setup.
Store credit is no longer a new term in eCommerce. However, the very first idea of it actually came from how physical shops managed returns. Back in the 19th century, many general stores had to offer handwritten credit notes or ledger balances when a customer returned an item but did not take cash back. This kept the money inside the store and encouraged the customer to return for another purchase.
Over time, store credit becomes a digital feature embedded in point-of-sale and eCommerce platforms. For example, Bath and Body Works includes store credit as a refund option in their policy. Some physical stores still issue printed credit slips as well. You can think of a coffee shop where customers collect points on a punch card and redeem them for a free drink on their next visit.
Bath and Body Works’ store credit policy
1.2. What is a gift card?
A gift card is a prepaid card or value-stored digital code that a retailer issues to customers. With the balance loaded on it, the customer can make purchases within the issuing store or platform. Each time they use the card, the store system deducts the purchase amount from the balance.
The leftover value, if any, can remain valid until it reaches zero or expires, depending on the store’s policy. In modern retail, gift card programs serve as effective tools for incentives and promotions. Such cards are also designed to be transferred, allowing customers to gift them to others.
In terms of origin, gift cards first appeared in the United States in the mid-1990s. Blockbuster, the video rental chain, is credited with launching the earliest widely used plastic gift card in 1994 for the purposes of replacing paper gift certificates and reducing fraud, while also giving customers a convenient way to buy credits that could be shared or gifted to others. It was then popularized by Starbucks, which introduced reloadable gift cards in 2001 and turned them into a loyalty program.
Nowadays, gift cards are so popular worldwide in both physical and online stores that many regions impose legal rules on gift card policies to protect consumers. Regarding eCommerce adoption, Amazon was one of the first major online retailers to integrate digital gift cards in the late 1990s and early 2000s. Customers on the platform can buy e-gift certificates online and apply them directly at checkout or send them electronically to others. The campaign was a success, with gift cards contributing around 5% of Amazon’s total revenue.
In the market, there are two main types of gift cards, which are:
The first one is closed-loop cards, which can only be used at the issuing retailer.
The second type is open-loop cards, which are branded by major payment networks such as Visa or Mastercard and can be used at a wide range of merchants.
In this article, however, we will only discuss closed-loop digital gift cards in comparison with store credit.
1.3. Store credit vs gift card: What are the key differences?
From their definitions alone, it’s obvious that store credit and gift cards are fundamentally different. Although both provide customers with a way to pay without cash, store credit is issued by the retailer and tied to the customer’s account. In parallel, a gift card is prepaid, transferable, and often purchased or given as a present.
Such distinctions affect how the value is provided, how it can be used, and how customers perceive it. You can also see these contrasts from the store credit vs gift card comparison table below:
Aspect | Store credit | Gift cards |
|---|---|---|
How it's used | Granted by the retailer (refunds, loyalty, compensation) | Purchased by customers, granted by the retailer, or given as gifts (prepaid value) |
Ownership | Tied to the customer’s account; non-transferable | Transferable; can be gifted to others |
Usage scope | Only redeemable within the issuing retailer | Closed-loop (issuer only) or open-loop (usable widely with payment networks) |
Customer perception | Seen as a refund balance or reward from the store, more of an “earned value” | Seen as prepaid value or a gift that works like store money |
2. Pros, cons, and common use cases of store credit
So, what are the advantages and disadvantages of using store credit, and when should you, as a merchant, apply it? Generally speaking, this tactic helps retain revenue and encourages customers to come back for future purchases. Its applications are also quite flexible, ranging from refunds to loyalty rewards. However, tracking and managing balances can feel confusing or inconvenient for both merchants and customers.
To get a clearer picture, let’s look into the details.
2.1. What are the advantages of using store credit?
Store credit offers several practical benefits for merchants:
Encourages repeat visits and repeated purchases: According to ReturnGO data, nearly 70% of customers return after receiving store credit. At the same time, those who receive store credit are about twice as likely to buy again compared to those who receive a regular refund. It makes sense. Online store credit provides a more convenient and flexible option for future purchases. Also, the unused balance triggers the loss aversion effect, creating a strong motivation for customers to come back.
Increases spending: ReturnGO also points out that shoppers tend to spend an extra $20 or more when they use store credit to complete a purchase. While there is no direct academic research, a parallel can be drawn from consumer behavior with credit cards. Studies show that consumers are more likely to overspend when using credit compared to cash, because the “pain of payment” is reduced.
Keeps money within the business: As mentioned earlier, store credit is a non-cash balance tied directly to the customer’s account. It can only be redeemed in the same store. Unless the customer uses it, which means another purchase chance, the value remains locked in your ecosystem.
Streamlines returns and reduces refund friction: Typically, it takes 5-10 business days to process cash refunds, and the process involves multiple intermediaries such as banks, card networks, or PayPal. Not to mention pending authorizations and settlement delays that can happen along the way. Store credit, on the other hand, lets you issue the balance immediately and keep full control. Customers can also receive and use it right away.
Supports promotional flexibility: Store credit isn’t all about refunds. They are also helpful for marketing campaigns, incentives, and loyalty programs. You can also offer them as goodwill gestures. We will get into the details soon.
Not bound by strict legal rules: Another clear advantage of store credit is that it hasn’t been explicitly regulated under consumer protection laws like gift cards. Most regulators treat it as an internal merchant liability. That means you have more freedom to define conditions such as expiry dates or redemption terms.
2.2. What are the disadvantages of issuing store credit?
At the same time, store credit can create friction if not managed carefully:
Limited appeal for some customers: More than half of shoppers prefer cash refunds over store credit. It comes down to the limited usability of the store credit balance. To be fair, this amount is only valid within the store and cannot be used elsewhere. Meanwhile, the customers can spend freely anywhere with cash.
Lower perceived value than gift card: Comparing store credit vs gift card for eCommerce, customers often see store credit as less exciting or rewarding. The reason is that it is account-specific. In the case of gift cards, they can be used independently or shared with someone else if the customer has no demand at the current time. In addition, store credit is common in refund situations. For some shoppers, it can feel more of a liability and less of a reward.
Requires careful accounting: Tracking store credit balances demands robust system infrastructure. In addition to ongoing adjustment and redemption tracking, you also need to reconcile liabilities accurately. Should the records be inconsistent, discrepancies can lead to customer disputes or even compliance risks.
2.3. What are the common uses of store credit in eCommerce?
That’s the pros and cons of store credit. At this point, you might be wondering, How do I make use of the tool properly for my online store? Based on some proper research and industry experience, we recommend that you apply for store credit:
As an alternative to cash refunds. This is probably the most common use of Shopify store credit. Essentially, you give the customer some online credit equivalent to the cash amount for their refund request. Yet, it's important to approach this wisely as the two concepts are not always the same. Read our store credit vs refunds guide for more insights.
As a goodwill gesture. According to Shopify, store credit is a simple yet effective way to resolve customer complaints and preserve relationships. Think of situations like shipment delays, defective items, or poor customer service.
As a form of customer retention. For example, when processing product returns, you can issue store credit instead of cash refunds to keep customers engaged.
As part of a marketing campaign. There are more creative ways to apply store credit than a simple refund alternative. You can integrate it in promotions such as holiday campaigns, product launches, or bundle offers. For instance, “Spend $100 today and get $10 store credit for your next purchase.”
As a reward or incentive, such as a loyalty or referral program. Many eCommerce brands have successfully adopted store credit in their programs. Common practices include giving credit for repeat purchases, referrals, or birthday gifts.
3. Pros, cons, and common use cases of gift cards
Gift cards have been widely popular and well-established for years. Most merchants can easily name one or two. For example, they generate upfront revenue and work perfectly as gifting tools. That said, gift cards are not always perfect. They may create breakage, raise regulatory concerns, or frustrate customers with expiration dates.
We will discuss these points in more detail right after this.
3.1. What are the advantages of using gift cards?
Gift cards provide several practical benefits for merchants and customers:
Captures revenue upfront: Gift cards are prepaid. Customers must purchase the card before using it or giving it as a gift. As the payment is made in advance, your business will see immediate revenue recognition.
Extends reach to new customers: Gift cards can work like a referral that brings in a first-time shopper. Because they are transferable, those who buy them can give them away. This is your chance to reach and acquire new customers at a low cost. 23% of consumers said they received at least one gift card for a merchant they had never shopped at before.
Increases order value: Similar to store credit, customers with gift cards also tend to spend more than the card’s value. This can be accounted for by the psychological effect of having “free money” and the tendency to round up purchases. According to Capital One Shopping’s data, 61% of consumers spend more than the gift card’s value when redeeming it. The average overspend is $31.75.
Boosts brand visibility: Digital gift cards keep your brand in front of customers through emails, mobile wallets, and online accounts. Every time a customer receives, forwards, or redeems a card, they see your logo and store name, which is an excellent way to reinforce brand presence.
Strengthens customer loyalty: 66% say they are more likely to join a loyalty program if it includes gift cards. Such appeal comes from the fact that consumers see gift cards as added value.
3.2. What are the disadvantages of using gift cards?
Despite their strengths, gift cards have some drawbacks:
Fraud potential: A report by the Federal Trade Commission (FTC) showed that gift cards have consistently been the top payment method in scam reports. Accordingly, out of every four fraud reports, there is one case related to gift cards. In 2021 alone, the total scams amounted to $148 million. Anonymity, instant delivery, and easy resale are among the main reasons.
Limited scope and breakage risk perception: Just like the case for online store credit balance, digital gift cards are only redeemable in the issuing store. Despite being transferable, card expiration or balances being forgotten can negatively affect the customer experience.
Legal complexity: The next drawback is strict legal regulations. In the U.S., the Credit CARD Act requires gift cards to remain valid for at least 5 years, and inactivity fees can only be charged after 12 months of no use.
Extra operational costs: Gift cards require extra setup when it comes to integration with POS systems, loyalty platforms, and fraud prevention tools. You will need more resources and higher system capabilities compared to managing simple store credit.
3.3. What are the common uses of gift cards in eCommerce?
Gift cards are widely applied in online retail, especially for campaigns and customer engagement:
Seasonal marketing. Gift cards sell especially well during holidays, birthdays, and special events. A case study by the National Retail Federation pointed out that holiday gift card spending in the U.S. reached $28.6 billion in 2024.
Loyalty and rewards programs. You can integrate it into incentives for loyalty or referrals. Think of the earlier example of Starbucks Rewards. What the famous coffee chain does is they issue reloadable digital cards. Their customers can then earn and redeem gift cards as part of the points system, which drives repeat visits.
Corporate gifting. This is a common practice in bulk orders for employees or partners. For example, companies like Amazon Business provide digital gift cards in bulk to reward staff performance or recognize milestones.
That’s basically every angle of comparison. Thus far, we are confident that you already have a clear understanding of the mechanics and the store credit vs gift card pros and cons.
In the following sections, we will dive deeper into their impact on business performance and continue with the strategic perspective. You will learn how to assess your business needs, match each tactic with your goals, and set up effective systems with practical tips and best practices to maximize ROI.
4. The impact of store credit and gift cards on business performance
This part explains how these tools affect business outcomes such as revenue, costs, and return on investment (ROI), with a closer look at implementation costs, revenue impact, and operational savings. The purpose is to give you a brand new perspective on how store credit and gift cards actually influence business results.
So, without further ado, let’s get into it.
Factor | Store credit | Gift cards |
|---|---|---|
Implementation costs | Moderate. The system needs built-in features or third-party apps. Monthly fees are around 20-1000 USD, often bundled with returns or loyalty tools. | Higher. The system needs a dedicated issuing platform with secure code and fraud checks. Costs can reach hundreds to thousands of USD per year. |
Revenue impact | The merchant preserves revenue. Store credit keeps money in-store and drives repeat purchases. | The merchant gains upfront revenue. Customers usually overspend 20-40 percent above card value. |
Operational savings | It cuts costs by reducing refund handling, chargebacks, and support time. | It primarily saves on logistics. Digital cards remove printing, shipping, and inventory costs. |
ROI outcome | Long-term ROI. Store credit protects revenue from refunds and drives repeat orders. Customers tend to come back to redeem their balance, which builds retention and customer lifetime value. | Immediate and recurring ROI. Gift cards deliver instant cash at the time of sale, generate extra revenue when redeemed with overspending, and add profit when balances go unused. |
5. Store credit vs gift cards for eCommerce: Choosing the right strategy
When to use store credit and when to use gift cards depends on many factors. In addition to the return volume, you should also take into account elements like your primary business goals for a specific period of time, internal resources, and performance metrics.
This section presents a practical checklist with detailed guidance on business needs assessment, business model matching, and some red flags to factor in. You can refer to it as a decision framework to make a more informed choice.
5.1. Assess your business needs
This determines whether store credit or gift cards will generate a stronger impact. Ask yourself: which outcome matters more for your business at the time? Is it protecting revenue and building loyalty, or is it attracting new buyers and expanding reach?
A basic needs assessment involves data collection, data analysis, and stakeholder involvement. The data here includes feedback from customers, operational and financial records from within the business, and insights from external stakeholders. From there, you will be able to draw clear conclusions about priority goals and take strategic action.
(Image: Collidu)
You should implement store credit programs if your main focus is:
Retaining customers and encouraging repeat purchases.
Reducing revenue loss from returns and refunds.
You should implement gift card programs if your main focus is:
Attracting new customers
Driving sales during seasonal or holiday campaigns.
Boosting brand exposure.
5.2. Match with your business model
What you sell, who you sell to, and which sales and retention strategies you are applying also affect which option is more effective. Compared to gift cards, you can apply store credit in more ways.
The use cases range from handling returns and rewarding loyalty to giving flexible incentives, all focus on driving repeat purchases and keeping revenue within the business. Gift cards, on the other hand, are about attracting new customers, supporting gifting occasions, and expanding brand reach.
Therefore, store credit can be of more help if your store has frequent purchase cycles, return-heavy operations, or loyalty-driven models. By contrast, you may use more gift cards with gifting businesses or seasonal demand. While the customers here often make one-off or event-driven purchases, gift cards inject immediate revenue and generate more by attracting new customers.
That doesn’t mean you must use one and not the other, though. The bottom line is to match with your product type, customer behavior, and overall strategy to implement the right incentive program, be it store credit or gift cards, or both.
5.3. Watch out for red flags
Avoid store credit if:
You have low return rates. The average eCommerce return rate is around 17%. A rate of 17% or below indicates that store credit yields little ROI in such cases .
Your customers strongly prefer cash refunds.
You don’t have adequate systems to track balances properly.
Avoid gift cards if:
You face legal or compliance complexity that is difficult to manage.
Your business model does not fit the gifting use case.
You have limited resources to handle fraud prevention or regulatory requirements.
Which is better, store credit or gift cards? Honestly, there is no single definitive answer to that. It often takes a business some testing and evaluation to eventually arrive at the right “formula”. The following comparison table gathers commonly observed advantages and limitations from industry practices and gives insights into what each option tends to deliver in general.
Criteria | Store credit | Gift cards |
|---|---|---|
High return rate (>17%) | ✅ | ❌ |
Want new customers | ❌ | ✅ |
Small business setup | ✅ | ❌ |
Sell gift-worthy items | ❌ | ✅ |
Avoid legal complexity | ✅ | ❌ |
Comfortable with regulations | ❌ | ✅ |
Service-based business | ✅ | ❌ |
Seasonal/holiday focus | ❌ | ✅ |
6. How to set up store credit and gift cards on your Shopify store
6.1. Use built-in Shopify features
Shopify offers gift cards and store credit by default, which are available directly in the platform without extra installation. You can find them in the Products and Customer settings sections, respectively. These Shopify features are quite basic and easy to set up. They also offer adequate functions for issuing and tracking at a basic level, despite most processes being manual.
However, there are limitations with the default, such as advanced functions for automation and flexibility. For instance, you can’t enable partial store credit redemption, bulk issue credits, or set conditions such as applying credit after a first purchase, a product review, or a loyalty milestone. This goes the same for gift cards.
6.2. Install third-party apps
Another option is to take advantage of third-party solutions. Shopify has an extensive App Store library with a host of tools for loyalty, store credit, and gift card management. You can easily browse and install apps that provide both basic and advanced needs.
However, do expect some extra costs and setup time when using such apps. Another common pitfall is adding too many overlapping apps, which can complicate checkout and confuse customers.
Here comes the best Shopify gift card tools:
GV: Gift Cards & Store Credit
Vify: Professional Gift Cards
Givy: Gifting & Gift Cards
Here comes the best Shopify store credit tools:
Koin Cashback & Store Credit
Angle: Store Credit Cashback
Redeemly Store Credit Cashback
As far as we have tested, Koin is highly reliable, and our experience was beyond expectation. In addition to basic credit issuance, its unique strength is its ability to turn store credit into a loyalty-driven cashback system. The Shopify store credit app integrates seamlessly with Shopify Flow for automated campaigns, provides real-time credit dashboards, and offers promotional widgets that actively re-engage customers and increase repeat purchase rates. No wonder Koin is currently ranked no. 1 in the store credit and cashback apps.
6.3. Configure store policies
Apple’s gift card policy example
For store credit, it is equally important to set clear rules on when customers will receive store credit vs cash refunds. Do you allow store credit as the default for returns? Do you apply it as part of loyalty programs or as goodwill compensation in special cases? A transparent policy helps prevent complaints and chargebacks.
Here’s a quick guide on what to include in your policy:
Programs covered: Clearly state if the policy applies to returns, loyalty rewards, goodwill compensation, or promotional campaigns.
Use cases: Explain how store credit or gift cards are applied, such as for size exchanges, seasonal marketing offers, or bonus credit for loyal customers.
Timeframes: specify validity periods, legal expiry rules, and deadlines for redeeming credit or gift cards.
Redemption rules: Outline whether partial use is allowed, if balances roll over, and whether they can be combined with discounts.
Policy placement: Decide whether to include these rules in your main return and refund policy or publish a dedicated policy page for clarity.
7. Additional tips for maximizing profit with store credit and gift cards
Now you are all set! You are ready to launch your first store credit or gift card campaign. Below are some best practices to maximize profit and customer engagement:
Leverage Shopify Flow for automations: Shopify Flow is an automation tool that lets you set triggers and actions. When paired with store credit, it can automatically issue rewards for specific purchases or prompt cross-sell suggestions that encourage customers to redeem credit on higher-value items.
Create limited-time or seasonal gift card campaigns: Seasonal campaigns use urgency and occasion-based demand. When applied to gift cards, they drive upfront cash flow during holidays and bring in new customers who receive cards as gifts.
Incentivize higher purchases with tiered bonuses: Tiered bonuses add extra value when customers spend more. With store credit, this motivates higher order values; with gift cards, bonus value (like “buy $100, get $120”) makes the offer more attractive and increases sales volume.
Combine with subscription or loyalty programs: Loyalty and subscription programs rely on retention. Linking store credit as a loyalty reward or offering gift cards for renewals strengthens customer stickiness and reduces churn.
Optimize tracking: Track key metrics like issuance, redemption rate, and outstanding balances to understand how much value customers actually use. This helps you spot whether store credits are driving repeat purchases or just sitting unused. You can also use such insights to refine campaigns, reduce unused balances, and maximize ROI.
8. Conclusion: Final thoughts and key takeaways
That concludes our entire article on store credit vs gift card. That sounds like a lot to digest in one sitting, right? To sum it up, store credit and gift cards differ in how they create value. Store credit protects revenue by keeping refunds in-store and strengthening retention, while gift cards generate new revenue through upfront cash flow, gifting, and customer acquisition.
When deciding the right strategy, think about your business model and goals. Store credit excels at retaining customers and boosting repeat purchases. Gift cards, on the other hand, are better at acquiring new customers and driving upfront revenue. Not sure which to choose in your specific case? You can’t go wrong with beginning with store credit for simplicity and later adding gift cards for acquisition and seasonal campaigns.
And if you are on Shopify, the easiest way to get started is to try store credit. With apps like Koin, you can set up automated store credit rewards, integrate with loyalty programs, and immediately start turning refunds into repeat purchases. So why hesitate? Let’s put it into action today!
-About Author
Emma C.
As the Chief Marketing Officer at KOIN app, I’m here to build a robust ecosystem by collaping with Shopify apps. Together, we can create seamless integrations that add more value to our shared customers.
KOIN helps merchants retain customers, increase repeat purchases, and drive loyalty by offering cashback and store credit rewards.
📩 Let’s connect! emma@getkoin.io
